This state of affairs did not last long, however, only until the NFP Report. The Nonfarm Payrolls brought another surprise for the day, showing an increase of 243K jobs in January, handily beating the forecast of 150K. It also bested December’s revised 203K growth and was the strongest job growth in nine months. The increase in hiring pushed the unemployment rate down to 8.3%, the lowest since February 2009. Late in the day, the ISM Non-Manufacturing index delivered yet another surprising result, coming at 56.8. To put in perspective, analysts expected a reading of 53.1 and previous one was at 52.6. The good news proved damaging to the US Dollar, though, as if it was losing its safe haven status when American economy shows signs of improvement. In case of the USD-CAD, it dropped sharply, deep under the parity level, making it one of the most eventful days for this pair in a long time.

The Euro, fighting own problems, did not have such a good day. Initially, it plummeted over 100 pips, although it recovered a good portion of that as the day went on. Clearly, markets are losing patience with what is going on in Greece. As we recall, this country “was on a verge” of reaching an agreement with its creditors two weeks ago. Here we are, in early February, still hearing exactly the same phrase. Obviously, there is no progress and that could be costly for the EUR in days ahead. Have a great weekend!

Mike K.

In a typical fashion for Friday, I looked at trading short-term price swings at the start of the London session. The EUR-USD formed a price range in hours leading to European opening, with well-defined support and resistance. Eventually, there was a bullish breakout, which filled a buy order at 1.3120. My objective of 30 pips was met fast, on a nice follow-up by the price.

Another trade involving the Euro was in the EUR-CAD, which I discussed it at the start of this week. It took a while, but the price finally started to move in the desired direction. Friday brought a nice acceleration on Friday, closing at 1.3240. I got out at the end of the day with 85 pips gains. Even though the trend still has some room to go, there are often reversals at the start of the week, so I simply want to avoid it. Other trades covered in the last few days are still valid, at least for now. Have a great weekend!

Mike K.

While it sounds good, to date not one Japanese company took advantage of this source of capital. Interestingly, last year Japanese multinationals went on a largest oversee spending spree in at least 12 years, buying about $90 billion worth of foreign companies. Some analysts say that Japanese businesses simply have surplus of funds and do not need to borrow, while others argue they are simply avoiding cumbersome and time consuming government process. Whatever the reason, this program appears to be a failure. There was talk about expanding it, but since there is no interest, it could expire in eight months or so, leaving Japan with intervention as the most viable way to weaken the Yen.

On Sunday, I discussed a short-term reversal trade in the GBP-USD. I was looking for a bearish reversal candlestick pattern on the hourly chart within first few hours of opening. The price unfolded not exactly the way I wanted, with a bearish sign forming immediately after trading started. Regardless, I sold the GBP-USD at 1.5542, seeking 50 pips. My objective was probably too ambitious, the price only dipped to 1.5516 before turning bullish. Since things were not going my way, the trade was closed at 1.5562 or 20 pips loss.

A week ago, I covered CAD-CHF on these pages, or more to the point, its intermediate term chart. My idea was to go short at 0.9230, with 100 pips objective. The price rallied at first but eventually turned south and triggered my order. I closed it earlier today at 0.9163 or 67 pips profit. It is short of target, however, the price dipped much lower and rebounded, so I thought it prudent to pocket some gains and move on.

With the British Pound very strong today, it will be interesting to see if this continues. Some technical developments suggest it will. On the 4H chart of the GBP-CAD, for example, the price is finding repeated resistance at just above 1.5800. The more often this level is tested, the more likely it is to break with a bullish continuation. I have a buy order at 1.5815 looking for 100 pips. With any luck, it could happen before the end of this week…

Mike K.

The BoJ will be followed on Wednesday with policy meetings in the USA and New Zealand. While the RBNZ announcement has the highest probability of some action, all eyes will be on the FED. Nobody expects a change this time, but it will be the first meeting when the central bank releases its interest rate projections. It goes without saying that everybody wants find out when FED expects the first interest rate hike and how much tightening is projected in the following years. Also, in recent few weeks public comments by regional FED presidents seem to signal a willingness to ease monetary policy further this year, the so-called QE 3. Latest fundamental data has been mostly positive, indicating economic growth, well, recovery in the USA. That does not rule out any action, but it probably pushes any announcement of a major policy move out to meeting later in the year. We will find out in few days.

Recently the uptrend in the AUD-CHF has become very choppy, as if ready to reverse. Corrections are bigger, volatility is higher, possibly building a top on the intermediate term chart. I would like to short it if the price dips under the recent low of 0.9695, with entry at 0.9690. This trade, if filled, will attempt to capture 120 pips. Alternatively, if the AUD-CHF continues higher and makes a new high, it is likely to form a divergence with the MACD. In such event, it could offer a decent shorting opportunity.

Another currency pair of interest is the EUR-CAD, also on the 4H chart. Here the price already bounced from the low of 1.2875 to 1.3147, perhaps forming a bottom. I want to go long on a bullish breakout with entry at 1.3155. The target is 1.3300. There is a small complication; I would like to see a little more pullback first. Not necessarily much lower, but I do not want to enter into a trade if the EUR-CAD rises right after the open. Initial opening moves often lead to false breakouts, something I want to avoid. After the first few hours, the order becomes valid.

While waiting for those trades, which could take some time because of relatively large time scale, I will look for shorter-term opportunities. One of them could materialize in the GBP-USD, among others. After a sharp rally on Friday, the cable is likely to go through a correction. Preferably, I would like to see a little continuation, but the signal itself will be a bearish reversal candlestick pattern on the hourly chart. Objective will be 50 pips, although details will have to be worked out once the entry is confirmed. Have a great trading week!

Mike K.

Is it turned out, the Standard and Poor’s itself provided a solution, of sorts. On Monday, the rating agency downgraded the EFSF to AA+ from AAA, reflecting its recent cuts to credits of individual countries. This means that Germany no longer will have to come up with a bigger share of fund. From a practical standpoint, this downgrade is more symbolic than real and should seriously raise borrowing cost for the facility. Just look at the USA, which suffered the same fate few months ago, yet still enjoys historically low costs. On balance, this action will most likely not carry any meaningful consequences, but certainly adds to confusion and increased sense of uncertainty.

This week some currencies created opening gaps. While easy to spot, they were very big, but a few of them were still worth the trouble. I focused on the AUD-USD, because it gapped down, and then continued lower. My ideas was to simply follow the latest high with a buy order using 5m chart and try to get in on a reversal. Eventually, my order was filled at 1.0276. After what seemed like a long wait, the AUD-USD finally reached my objective, bringing 30 pips. Not too bad, given limited potential here.

In the last post, I discussed a possible Head and Shoulders on the 4H chart of the CAD-CHF. It is no longer possible; price action did not form the pattern. However, my sell order remains valid, for now at least. At the same time, also as covered before, the CAD-CHF tested the 0.9400 level again and pulled back. Now I am interested in buying it as well on a move above the resistance. I have buy order at 0.9410, and this trade, if it happens, has a 100 pips objective.

After falling to near the all time low, the GBP-JPY is trying to reverse. On a short-term chart, hourly, we can see a possible rounded bottom under construction. The pattern will not be confirmed until the price moves above the latest minor high at 118.25. With this in mind, I placed a buy order at 118.33, target a 100 pips run. This is just a (possible) short-term reversal, not necessarily the bottom for the main trend. In addition, if the GBP-JPY keeps moving sideways for much longer, even a minor reversal will become unlikely. Prolonged consolidation favors resumption of the previous trend, down in this example.

Mike K.

Now Japan feels the threat of similar action. Her prime minister, attempting to build support for painful fiscal reforms, said Saturday that the country should be alarmed by ratings cuts in Europe and must tackle its massive public debts to avoid becoming the next target. Noda says Japan urgently needs to reduce its debt burden as the nation ages and its labor force shrinks, putting a greater burden on the social security and tax systems. He has promised to submit a bill by the end of March to raise the 5 percent sales tax in two stages, to 8 percent in 2014 and to 10 percent by 2015. To be fair, most of Japanese debt is held internally and not internationally, but another downgrade could be painful and seemingly official feel the heat.

Meanwhile in France, the Prime Minister Fillon said Saturday his country would push ahead with cost-cutting measures. The downgrade confirmed his conservative government’s plans for more reforms to bring down debts, despite worries that more austerity measures could suffocate growth. However, the government would not adjust the budget yet, saying it had been devised with an assumption of higher borrowing costs. This is typical of what we have been hearing from Europe in the last two years – plenty of talk but very little practical steps. In the end, Friday’s downgrades provide Germany with even bigger clout than before which could have a profound impact on what the EU will do to combat the problem (if they ever do anything).

Few days ago, I discussed a weekly chart of the EUR-NZD, which showed a strong possibility of MACD divergence. For a while, the weekly chart almost produced a reversal pattern, but a steep selloff on Friday closed at almost the weekly low. However, this choppiness created another probable MACD divergence, this time on the 4H chart. The divergence itself is almost guaranteed now, as long as the price makes a new low, but the EUR-NZD still needs to show a bullish reversal pattern. I would like to see a hammer or a bullish engulfing line, which would act as the trigger here, with at least 200 pips objective.

Meanwhile the CAD-CHF has consolidated, building a potential Head and Shoulders reversal on the intermediate term chart. For the pattern complete, the price must move under the latest low of 0.9238. I have a sell order at 0.9230, targeting 100 pips if it is initiated. Should the advance continue I would look for signs of resistance at 0.9400. Another pullback from that level could create a buying opportunity on a follow up breakout. As for immediate concerns, opening gaps could form and those are often exploitable. Have a great trading week!

Mike K.

The interim central bank chief Thomas Jordan is unlikely to implement important changes in present policy. If anything, he will be under even greater pressure to raise the floor. Many in Switzerland are demanding the EUR-CHF to be at 1.30 even 1.40. This probably will not happen either, at least not immediately. For now, we should expect the SNB to stick with 1.20 floor, although it does not mean an intervention at precisely that level. The price could easily drop perhaps 1.18 before any action is taken. On the other hand, the SNB might start a “soft” intervention now and keep purchasing the Euro in small dozes around the clock without major spikes. Whatever happens, “buying the Euro in unlimited quantities” is still its official policy, which unlikely to change in the short term.

The EUR-CHF is flirting with 1.21 level, possibly on its way to 1.20. I do not plan to buy it at 1.20 solely based on what the SNB is saying, but IF the price dips to 1.20-1.19 and IF there are technical reasons on the 4H/Daily chart to go long, it might not be a bad idea. After all being on the side of the central bank might be positive. Plenty of “ifs” here, so no real plan yet, but a consideration should the price drop lower.

Trade from last post involved the USD-CAD. Plan was to see initial upward continuation, followed by a bearish reversal candlestick on the hourly chart, serving as the entry signal. There was a shooting star, closing at 1.0304, which became my entry. Probably should have waited four more hours for the bearish engulfing line, but that would have produced almost identical entry. It took a while for the USD-CAD reach the 40 pips objective; however, the trade was relatively easy and worked out as planned.

Mike K.

Chances are that the summit in Brussels on January 30 will not produce agreement on this issue. In such case, Mr. Sarkozy will try to impose the Tobin tax unilaterally before the April presidential election in France. French business was quick to distance itself from the idea. Paris Europlace, a financial markets association, warned that unilateral application of this tax would drive banking, insurance and asset management business out of Paris, and benefit of other large financial centers. It could even hurt Sarkozy’s reelection bid. Ultimately, though, it will further sour European unity at a time when it is most needed.

The USD showed strong gains on Friday, especially against the Canadian Dollar, which fell of confusing employment numbers. While the Net Change in Employment improved with 17.5K new jobs, even higher than the projected 15 K, the Unemployment Rate somehow increased during this time to 7.5% from 7.4%. How is it possible? Beats me, but the USD-CAD had a nice rally and closed at 1.0283 just shy of the daily high. This, it turn, sets up a short-term reversal trade, a sell in this case. I want to see a bearish reversal candlestick pattern on hourly chart, looking for a 40 pips correction.

After a bullish spike on the first trading day of the year, the Euro fell for the rest of the week. Fundamentally, there are few, if any reasons to by the common currency, but it could be getting oversold for now. Such is the case in the EUR-NZD. At 1.6287, the price is approaching the previous low of 1.6201, creating a possible MACD divergence on the weekly chart. It is a chart to watch for me, in case the divergence actually develops. That would be confirmed by a strong bullish reversal pattern. Because this is a weekly chart, we have to wait at least a week for the next candle to form, maybe even longer. If it does, the price could easily recover to 1.70 or so.

Mike K.

Earlier this week I discussed a simple non-directional play in the USD-CHF. I was looking for a breakout from the tight range the price formed on Monday. The move turned out to be down, triggering my sell order and rapidly reaching the 40 pips objective. Good way to start the year.

There are all kinds of things happening in almost all currency pairs. The uncertainty is great and large moves are possible in both directions everywhere we look. And the volatility is likely to increase. I have a lot trades all over the place mostly using shorter-term charts. One of the new trades I am considering is in the GBP-CAD pair. Here going long at 1.5893 could catch a nice rally, if it happens. My objective is 100 pips, hopefully fast.

Mike K.

His action prompted talks about UK being isolated and for all practical purposes, having nothing to say about European affairs. Some analysts even say that Great Britain might as well exit the EU altogether because it has burnt all the bridges and will suffer the wrath of Brussels in one way or another. All of this is probably premature, speculation generated by press and not official sources. Eventually, perhaps, EU regulations could bite London financial services, when (if) the long discussed financial transaction tax is imposed. For now, we should leave it to the markets to decide if this supposed isolation is credible, and if so, will it actually hurt Great Britain. A good barometer of this sentiment could be the EUR-GBP currency pair.

The EUR-GBP has been in a massive consolidation for a few months now. While it is moving down, the progress is so slow, that it is painful to watch, never mind trading it. Now, however, bulk of the action is around the support of 0.8525. Given the general bearish sentiment, the price is trying break below the support. If that happens, the markets might be saying that British “isolation” is not necessarily too bad. We should find out this week.

A week ago, I discussed a consolidation in the AUD-NZD. This pair is locked in trading range between 1.3056 and 1.3266, and last week brought no change in this status. I still have both sell and buy orders, waiting for a breakout either way, with an objective of 150 pips. Admittedly, price behavior last week favors a bullish breakout, but that could change, given the time frame involved (intermediate). We can easily wait another week for a conclusion here.

Most of the currency pairs closed on Friday in a way that does not suggest the short-term reversal strategy plays in the early hours today. This means that I will be watching for opening gaps. In addition, the CAD-CHF could present a sell opportunity if the price pulls back to latest low. Right now, I have a sell order at 0.8987, targeting 0.8900. All of the commodity currencies show similar conditions in relation to the European currencies, something I might address tomorrow. Have a profitable week!

Mike K.